Thursday, July 26, 2007

The Role of Decision in the Enterprise, Part 1


Be willing to make decisions. That's the most important quality in a good leader.
—General George S. Patton

What separates a rank-and-file member of an organization from a leader in the same? While most of the production and support staff have duties that fall within the category of drills—sequences of discrete actions which comprise a larger task. While these are typically things that can be learned and easily repeated instinctually, they differ from the decisions that leaders make by their very nature of not being what drills are: Something that can be repeated on a mechanical basis.

Not surprisingly, the power of the decision has historically been important in combat, just as it is in the enterprise. Think about the great decisions throughout the history of business:

· The decision of John D. Rockefeller to combine the multitude of Standard Oil companies into one “trust.” Not only did this revolutionize the oil industry in that day and age, it produced the world’s first billionaire, one of the world’s first multi-national corporations, caused the United States government to form “anti-trust” laws, and re-define the ways of philanthropy by a single man and his family. According to Wikipedia: Standard paid out in dividends during 1882 to 1906 in the amount of $548,436,000, at 65.4% payout ratio. A large part of the profits was not distributed to stockholders, but was put back into the business. The total net earnings from 1882-1906 amounted to $838,783,800, exceeding the dividends by $290,347,800. The latter amount was used for plant expansion.

· The decision of AT&T on January 8, 1982 to settle a lawsuit and agree to divest its local exchange service operating companies in return for an opportunity to enter the burgeoning Internet services business: “Effective January 1, 1984, AT&T's local operations were split into seven independent Regional Bell Operating Companies known as "Baby Bells." RBOCs were originally known as Regional Holding Companies, or RHCs. The ramifications? The telecommunications giant additionally became an Internet Service Provider and most of the companies that were divested eventually merged back into a couple companies—in fact, one of the divested companies acquired the parent company AT&T to become, once again, AT&T. The current AT&T has a market capitalization of $1.18 Billion USD.

· The decision of a small Seattle company to start selling cappuccino and espresso drinks instead of just purchasing coffee beans from growers and selling them as a premium product revolutionized the coffee house industry. The name “Starbucks” is synonymous with the word “coffee” and its variations (i.e. very high Top of Mind Awareness, what marketers like to call TOMA). In addition, the cash flows of Starbucks are so high that they can open a store in Great Britain once every two weeks!

· The decision of Jay Van Andel and Richard DeVos to expand from such business ventures as a hamburger stand, air charter service, and a sailing business into a company simply called “Ja-Ri” in 1959 that would later change its name to a concoction of the two words “American Way.” Millions of people would become “downline” distributors, and thus their own bosses, and work towards being part of the “American dream.” The company was Amway and has thoroughly become seated in the American culture as something with a good and bad image.

· The decision of individuals working for energy trading giant Enron towards impropriety, especially of the financial variety would revolutionize the United States business environment by wiping out one of the five major accounting firms of the country and influencing Congress to enact laws on corporate governance.

And, lastly:

· In September of 1995 a computer programmer with a personal website put his broken laser pointer up for sale. When he astonishingly sold it for $14.83, Pierre Omidyar contacted the winning bidder and reminded him of the state of disrepair of the laser pointer. To his amazement, the buyer stated that he collected the unique item. eBay is now the holding company for eBay.com, online banking company Paypal.com and Voip service Skype and had 2006 revenues of $5.969 Billion USD.

The importance of the decision is truly an astounding one; one that we will certainly pursue further. To close, a quote from Napoleon on the nature of decisions in warfare:

There are times when a battle decides everything, and there are times when the most insignificant thing can decide the outcome of a battle.
—Napoleon Bonaparte

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